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Health reform 2.0

A guide to developing resilience amid an uncertain future for the Affordable Care Act

President Donald Trump and Republican congressional leadership have promised to repeal and replace the Affordable Care Act (ACA). Just how that will happen remains unclear. For the nation’s healthcare providers, payers, pharmaceutical and life sciences companies, new entrants and employers, this uncertainty makes planning for the future a complicated matter. In this report, PwC’s Health Research Institute and the firm’s strategy practice, Strategy&, present a comprehensive analysis of scenarios for repealing and replacing the ACA, along with practical steps health organizations can take in this time of uncertainty.

Providers

Under any reform scenario, healthcare providers likely will experience spikes in uncompensated care without a reversal of the reimbursement cuts they absorbed under the ACA. Under a “repeal” scenario, uninsured rates likely will wind up higher than they were before the ACA passed. Changes to the Medicaid program, undertaken in both “repeal” and “replace” scenarios, could have long-lasting and significant impacts on many providers, especially those with narrow margins. Key points include:

All scenarios lead to more uncompensated care: Patients without access to insurance are likely to put off preventative care, leading to costlier emergency interventions. Providers may lose access to paying patients, and their patients may be less likely to be able to afford their prescriptions, leading to worse health outcomes.

State and local politics will become even more important: As federal funding shrinks, healthcare providers’ fates will depend more on decisions made at the local and state level. Some states may have the funds to the gap in federal funding, and the will to do it, while many states may be unable or unwilling.

New entrants may find fertile ground amid the change.As states and insurers seek to reduce costs, providers best able to coordinate care and deliver value may benefit, though it will take time and effort to implement delivery reforms. Companies that can save states money by eliminating waste, managing high-cost patients or improving outcomes may find ample opportunities for success.

Payers

Large, commercial insurers already have largely pulled out of the ACA exchanges, citing heavy losses, enrollees that are sicker and older than expected and unpredictable government support of risk adjustment programs. Insurers that invested heavily in developing business based on the ACA exchanges and Medicaid managed care have the most to lose under a “repeal” scenario, which HRI and Strategy& predict could lead to the collapse of the nongroup market. “Replace” and “repair,” however, could present opportunities for these insurers. Key points include:

The ACA exchanges are not doomed. Under “replace” and “repair,” these marketplaces likely will remain relatively stable.

Providers may increase pressure on payers if uninsured rates rise. Healthcare providers likely would lose under “repeal” and “replace” scenarios. Providers likely will increase pressure on payers to increase reimbursement rates if uncompensated care rises and the Medicaid program contracts.

Life sciences

The ACA had a modest effect on most pharmaceutical and life sciences companies. The law imposed significant rebates on branded pharmaceuticals, blunting the impact of expanding the ranks of the insured. It also produced an annual feel on branded pharmaceuticals companies and an excise tax on companies selling non-retail medical devices. Because of the ACA’s modest impact on most companies, changes to it also would have a modest or minimal impact on most of the sector. Key points include:

Some drug companies could feel a bigger impact if Medicaid shrinks. Under the “repeal” and “replace” scenarios, states will face reduced federal funding of Medicaid. Companies with a greater reliance on the Medicaid program could experience drops in revenues if states decide to cut back on benefits as funding ebbs.

Tax reform likely will have more impact. President Trump and Republican lawmakers have discussed tax reform, which likely will follow health reform. Pharma and life sciences companies should consider assessing the impact of tax and trade reforms on their supply chain.

Employers

Employers stand to gain the most from “repeal” and “replace,” which eliminate reporting requirements associated with the employer mandate and also rescind the so-called “Cadillac” tax on high-cost plans. However, as rates of uninsured grow, employers that do not offer their employees coverage may find their workforces are sicker and less productive. Under “replace,” employers with young and healthy workforces may find it more advantageous to drop coverage and allow their employees to use age-based tax credits to purchase it in the nongroup market. Key points include:

Beware of job-lock. If employers decide to continue offering coverage, cost savings may be offset if sicker employees feel pressure to stay at their current employer for fear of not getting insurance coverage elsewhere, a return to the “job-lock” environment from before the ACA passed.

All scenarios lead to less paperwork for employers. Under the ACA, companies with more than 50 employees were required to provide insurance to employees working more than 30 hours per week. Under all three scenarios, the employer mandate would be repealed, which will reduce reporting and compliance costs imposed by the ACA.

Each scenario offers unique risks or benefits to different sectors

What this means for your business

As the healthcare industry assesses the potential impacts from the passage of healthcare and tax reform, companies will need to carefully consider potential impacts to their business and what they will need to do to survive, maintain their market position, or excel. But regardless of what shape reforms take, companies can continue to invest in strategies that embrace several “no regrets” moves that will set them up for success in the future.

Scenario plan. Payers, providers, life sciences companies and employers should begin to model various scenarios to better understand the impacts they could have on their business models and future plans.

Get fit. To mitigate the potential impact to earnings, healthcare organizations should embark on a program of reducing the percentage of their costs that are fixed. They should consider accelerating automation, investing in efficiency efforts and setting aggressive cost-reduction goals.

Bet on growth. Medical expenditures have increased every year since at least 1961, and spending growth is likely to continue over the long term as well. Companies should identify where that growth is likely to come from. Companies positioned to take advantage of opportunities will be better poised for future growth.

Continue investments in quality and value. Regardless of government policy, demand for greater value among consumers and payers will rise. In scenarios where cost constraints lead to lower reimbursements, companies able to provide value will benefit relative to their competitors, while still attracting customers.

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